Memphis Real Estate Investing

Passive Income: Maximizing Your Cash Flow in Turnkey Investing

For any buy-and-hold real estate investor, passive income is the most important factor in any investment. Sure, appreciation is nice, but it’s the bonus: the cherry on top. Cash flow is what actually makes the investment worthwhile.

As a turnkey real estate investor, it can be challenging to find ways to maximize your cash flow. As many of the minute details of investing in real estate are handled for you, is there room for you to actually get more out of your cash flow?

Here’s how turnkey real estate investors can achieve more from their turnkey properties.

6 Ways to Maximize Cash Flow in Turnkey Properties

Start with the right market.

One of the most important parts of maximizing one’s cash flow is keeping your vacancies low. Part of reducing vacancies is choosing the right rental market—one with a growing population and high rental demand. The research an investor must do at the outset is vital to success. It’s not about jumping immediately into the real estate listings. You must examine the economic conditions of your market (such as unemployment rate, market diversity, job growth potential, business environment, and more), consider the prospects for future growth, and the actual real estate market conditions.

We’ve said it before and we’ll say it again: every turnkey provider is different. It’s so important that an investor truly investigates their provider from the outset to ensure that they’re getting the most out of their investments. For example, some providers have certain conditions regarding financing, or one provider may have higher prices and fees than another.

While these costs may not necessarily be a deal breaker, you need to ensure that the services and value gained from what you receive versus what you put into it is worth it. Cheaper is not necessarily better, but knowing that what you get is a worthy investment is crucial.

It’s critical to be thorough when you speak to a turnkey provider about their process, management, and terms.

Pay attention to management reports month-over-month.

While the owner is not the one on the ground and dealing with the problems and challenges of turnkey investment properties as they come up, you are ultimately the one who calls the shots.

It’s important to pay attention to what your property management team has to say and to make the right decisions regarding property issues when you do need to get involved.

If you've been paying attention to management reports come time to make such a big decision, you'll have all the information you need to make it with confidence.

Don’t let chronic issues go.

When you get that management report month-to-month, try to identify patterns. If you’re noticing chronic issues, repairs, or problems with tenants, it’s important that you address these problems with your management team. You don’t need to let them go just because you might trust your managers. Bring it up, especially if it’s costing you month after month. See what solutions can be reached so that it’s not digging into your cash flow.

When it comes to issues like repairs, replacements, and renovations, you should feel empowered to voice your opinion, too.

In most cases, the owner won’t need to be bothered unless a repair or replacement will cost above a certain threshold, but if it does, one of the best things you can do for your property and its cash flow long-term is to make repairs that will last. Quick fixes may be cheaper, but investing in strong materials and quality is going to serve your tenants and property better long-term. When you have the opportunity to renovate, replace, or repair, always think about the long-term, even if the upfront cost is a little higher.

Identify a specialized CPA.

One of the biggest ways turnkey investors can maximize cash flow is through tax breaks and incentives. However, navigating all of the tax laws can be frustrating and challenging. One of the best things you can do for your investing career is to identify and hire a CPA who has experience in real estate and, specifically, in working with real estate investors. They will help ensure that you don’t miss out on a single exemption or tax break.

Diversify your portfolio.

For real estate investors, growing and diversifying your portfolio is one of the key elements to investment success. Why? If you’re sticking to one property or a handful of properties in a single market, if something goes wrong with that property or in that market, it can devastate your cash flow. A natural disaster or economic downturn can lead to prolonged vacancies, reduced rental rates, and other issues that can negatively impact your passive income.

If you want to maximize cash flow, diversify and grow your portfolio. Doing so helps hedge your portfolio against these risks and, in the case of trouble, preserve your cash flow to help see you through challenging times.

If you want to succeed in turnkey real estate investment, don't go in blind. Find a turnkey provider that you trust and go in-depth with them about the process. They will help you make a plan to maximize your cash flow!